Tiwai Point uncertainty stalls NZ renewables

New Zealand Aluminium Smelter Limited is behind the Meridian/Genesis deal keeping the Huntly Thermal Power Station burning coal as the threat of closing the Tiwai Point smelter is stalling the construction of consented renewable energy projects.

My last post at Hot Topic was about energy companies Meridian and Genesis doing a deal to keep the Huntly Thermal Power Station open (and burning coal) for an extra four years.

My post really just noted how backwards the decision was in terms of reducing emissions of greenhouse gases. And that the expected shut-down of Huntly represented the only predicted drop in energy emissions New Zealand had advised to the UNFCCC. And that reduction has just gone up in smoke.

However, New Zealand Aluminium Smelters Limited and the Tiwai Point smelter have a malignant background role in the Huntly deal.

Meridian Energy said the deal was necessary to provide security of energy supply if the hydro lakes are low. That is only the case if the next ‘cab off the rank’ of renewable energy capacity is not built to replace Huntly. The generators don’t want to build any new renewable capacity if the smelter closes and Meridian then releases cheaper Manapouri hydro electricity onto the grid.

Helter smelter deja vu all over again

The last time I blogged about the smelter was in late 2012, when the Government was rolling out the partial privatisation and float of Meridian Energy. New Zealand Aluminium Smelters Limited chose that moment to threaten to close the ‘unprofitable’ smelter and to demand cheaper electricity from Meridian.

For a re-cap of the issue, see this summary by Bryce Edwards as of April 2013. The conclusion was in August 2013 with a new (secret) power deal with Meridian with the Government putting in a $30 million subsidy on the promise of no plant closure before the end of 2017.

In terms of climate change policy, Gareth Renowden pointed out that the closure of the smelter would be a good thing.

Electricity prices would fall as Meridian’s cheaper Manapouri hydro power would enter the wholesale electricity market. The most expensive generation, from coal and gas thermal plants (such as Huntly) would be forced out of the market by price. Electricity security would be better, as Lake Manapouri’s storage would be available as a buffer for droughts instead of being committed to the smelter.

Cheaper power, less emissions, more renewables, more security. That sounds like the right strategy on a planet with a finite carbon budget consistent with no more than two degrees celsius of warming. What’s not to like?

Now fast forward to April 2015

Meridian has been partially floated. New Zealand Aluminium Smelters Limited is yet again stating that its electricity transmission costs are too high and linking that to the smelter’s future.

“No decision had been made about the future of the smelter, and we are doing everything we can to secure a long-term commercially competitive electricity price for the smelter.”

So back to square one. New Zealand Aluminium Smelters saying yet again “Nice smelter, you got there. Shame if something happens to it”. So who do they expect to give them a handout this time? Transpower, actually. The opportunity being the Electricity Authority’s review of transmission costs, in which a draft proposal was expected to give New Zealand Aluminium Smelters a windfall of fifty million dollars.

I suppose I should not be surprised by this sort of business behaviour. However, I am more interested in the electricity demand implications of a smelter closure.

Belinda Storey of Pure Advantage says that the threats to close the smelter have made future predictions of electricity demand uncertain. And therefore:

“Electricity companies have delayed investments in wind, solar, and geothermal energy while the Tiwai negotiations hold to ransom the forecasting of future demand.”

In November 2015, Meridian CEO Mark Binns confirmed that new electricity investments had been stalled by the possibility of the smelter closing:

“because nobody wants to build a new plant if Tiwai Point can go on 12 months notice”.

In December 2015, Binns confirmed to Fairfax’s Tom Pullar-Strecker that a smelter shut-down would release about 1.15GW of electricity, which would drop wholesale electricity prices and that none of the generators wanted to build the power station that would stop first when electricity demand dropped below supply. Binns even said:

“No-one wants to spend a lot of money and have a stranded asset”.

So, in 2016, in New Zealand’s electricity market, renewable electricity projects will be stranded assets. Pretty much because of New Zealand Aluminium Smelter Limited’s preferred mode of corporate behaviour.

The only thing more bizarre are the completely contradictory media releases from Energy Minister Simon Bridges.

Is there no use of fossil fuels that Bridges won’t describe as ‘transitional’? Is there any other explanation for Bridges contradictory statements than the assumption that he is a complete political weather vane when it comes to policy?

Huntly Power Station

Conclusion

From that last no doubt factual observation of Mark Binns, from his point of view as the boss of a company with public shareholders, we enter a “Bizarro World” of contradiction and ridiculousness. In the rest of the world, Nicholas Stern and Mark Carney and Carbon Tracker have laid out the case that coal, oil and gas reserves are stranded assets. But in New Zealand, it is new renewable electricity generation that will be stranded assets.

All because of consistently unedifying corporate behaviour by one trans-national company. And the Minister of Energy views the situation as within his very elastic definition of ‘transition’ and is happy to leave direction of the market to the partially privatised generating industry. Never mind carbon budgets and the Paris Agreement.

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